February 27, 2008

Being crammed like sardines in the Tube is not a lot of fun. On the plus side it’s the perfect environment for marketing to ABC1s (sociologist speak for professional and above, similar to American upper middle class and up?) as those people are very likely to be London Underground commuters for at least part of their journeys.

Advertising to well off people is a plus because, it turns out that one of the things that people like to market on the tube are financial services – something that unsurprisingly, I’m interested in. The other day, an advert from Prudential caught my eye. The strapline was something like ‘tired of your savings floating away with taxes?’ and the product being advertised was an ISA, a type of tax-free account.

Now I have a problem with this ad campaign. I’m a big fan of savings and ISAs, and you can get an ISA savings account, it’s called a cash ISA. But this campaign wasn’t for a savings account, it was for the other sort of ISA you can get. One that I’m also a fan of. The Stocks and Shares ISA. Does a Stocks and Shares ISA sound like a savings account to you?

The clue really, is in the name. A stocks and shares ISA is an investment account. It’s not a place for your savings, but for your mid to long term investments – stuff you won’t touch for at least five years gives a good rule of thumb. The man from the Pru is misleading you with his ad campaign.

For me, this leads on to the bigger picture. Too many people don’t realise the difference between savings and investments. This means that they are mis-sold investments without understanding the risks involved (check out endowment policies for example), and lose money that they can ill-afford to. This is the problem that might occur with the Pru ad.

There is an even more insidious risk though with confusing savings and investments. That’s people thinking that they don’t need or want to invest because it’s too risky, and that savings will be enough. Although it’s possible to use savings to generate sufficient return for the long term, it takes a lot more money to do so, and although it’s conceivable that savings could outperform investments, it’s relatively unlikely.

Over the long term, cash is one of the worst performing investments that you can make. Which means that savings accounts are one of the last places you want to put your long term money (one of the few things they beat is ‘under the mattress’). Getting people confident and educated about investing in the UK is already massively hampered by previous investment mis-selling. It doesn’t need to be made worse by investment companies mis-advertising their products.